KSA’s PIF plans a fresh USD 5.5 bn green bond sale

Good morning, friends. What we thought was looking like a turtle pace in the news realm did an about-turn with some big updates coming out of KSA.

THE BIG CLIMATE STORIES- Saudi Arabia’s sovereign wealth fund is reportedly planning to tap green debt markets for the second time in four months with a fresh USD 5.5 bn green bond sale. The planned issuance follows PIF’s maiden issuance last October, which had also seen the sale of the world’s first-ever 100-year green note. Elsewhere in the kingdom, a transcript from US gas supplier Air Products’ 1Q 2023 earnings call has revealed that Neom’s mega green hydrogen project will need an additional USD 3.5 bn in capital, bringing the plant’s updated price tag up to USD 8.5 bn. We have chapter and verse on this story in the news well below.

THE BIG CLIMATE STORY OUTSIDE THE REGION- Oil giant BP is once again drawing the ire of climate activists as it walks back on plans to cut fossil fuel output, after reporting record earnings yesterday of some USD 28 bn for 2022, off the back of surging energy prices. The company is scaling back plans to cut oil output as part of a much-touted renewables drive put forward by CEO Bernard Looney. It’s now targeting production of some 2 mn barrels of oil equivalent/ day by 2030 — down 25% from 2019 levels, compared with its previous 40% reduction target.

Looney claims that BP is meeting an energy security need: “We need lower carbon energy, but we also need secure energy, and we need affordable energy. And that's what governments and society around the world are asking for,” Looney is said to have told analysts.

Big talk about renewables is still on the table: BP reiterated its plans to increase annual spending in both cleaner energy and fossil fuels by USD 1 bn. Its renewables push will put more of a focus on using solar and wind power to generate biofuels and low-carbon hydrogen, Looney reportedly said.

The story is attracting widespread coverage in the international press: Reuters | Financial Times | Washington Post | Wall Street Journal | BBC | Guardian | ABC News | Bloomberg | Washington Post | Reuters | CNBC

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IN COP LAND- COP28 President Sultan Al Jaber hit all the high COP discussion points in a speech at India Energy Week in Bengaluru this week, Wam notes. Al Jaber argued for policies to support growth and climate objectives to “hold back emissions, not progress” while advocating for a massive increase in renewable energy capacity, continued investment in decarbonization tools like carbon capture, and the importance of a just and inclusive energy transition.

Bringing the energy industry on board “is not a conflict of interest”: Al Jaber also indirectly addressed the criticism that climate activists and Western media outlets have leveled at the decision to appoint him as COP28 President, saying he will use his experience and network to spur the entire energy industry to climate action.

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WATCH THIS SPACE #1- Fund managers are shifting away from indexes once seen as a safe climate wager: A swathe of Paris-aligned and climate transition benchmarks — designed to help fund managers track clean assets — have been downgraded in recent months, leading some investors to use their own benchmarks in a bid to find assets that support the transition to a low-carbon future, Bloomberg reports.

Why the downgrade? Because the indexes don’t necessarily get top EU ESG classification: Until late-2022, funds operated on the assumption that these benchmarks fell under the EU’s top ESG classification, Article 9 (pdf) — for “products targeting sustainable investments.” But amid a wave of uncertainty over the definition of sustainable investment — and a reported lack of clarity from the EU — many fund and asset managers have chosen to downgrade benchmarks that haven’t been specifically designated Article 9 to avoid legal and reputational risk, according to sustainable finance website Responsible Investor. A “great reclassification” of Article 9 funds has been “largely driven by downgrades of passive funds, especially Paris-aligned and climate transition benchmarks,” the finance outlet notes, citing recent data from US financial services firm Morningstar.

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WORTH READING- Could a green subsidy race give decarbonization a boost? Green subsidies from the world’s largest economies could be the best way to lower carbon emissions — second only to prohibitive carbon taxes — as it will level the playing field and boost nascent technology development, a commentary published on Reuters argues. The caveat is high carbon taxes and subsidizing renewables shouldn’t be mutually exclusive, as evidenced by countries like the US and China heavily subsidizing renewables with little to no carbon taxes.

A subsidy race between the US, China and the EU can benefit everyone: While subsidies are only second best to carbon taxes — with some of the challenges of subsidizing green tech including increasing government spending and inefficient resource allocation — a renewable subsidy race between the world’s three biggest blocks can help create economies of scale and lower the costs of nascent technologies. Adjustments to the green subsidy policies and protectionist measures put up by the big three blocks can help to ensure a more level playing field, especially for the Global South. Decarbonization efforts being conducted between the Global North and the Global South, as well as “friendshoring,” could help technology transfer to create more opportunities for smaller economies.

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SOUNDBITE OF THE WEEK- No net-zero plans? You shouldn’t be in business, Guterres says: "Your core product is our core problem,” United Nations Secretary-General Antonio Guterres said during his speech to the UN General Assembly this week. Guterres also pointed out the world’s need for a renewables push instead of an expansion of fossil fuel production and a hunt for income, saying fossil fuel producers lacking adequate carbon-neutrality targets and carbon reduction goals for 2025 and 2030 “should not be in business.”

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COME TO OUR NEXT ENTERPRISE FORUM-

We’re excited to unveil our next C-level event: The Enterprise Exports & FDI Forum, where we will take a deep dive into two of the most critical topics affecting our community.

Exports and foreign direct investment (FDI) have never been more important to our economy — or our businesses — than in the wake of the float of the EGP. We think we have a once-in-a-lifetime chance to build an export-led economy that makes us a magnet for FDI and all the benefits that will come with it for our nation.

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CIRCLE YOUR CALENDAR-

Egypt will host the Egypt Petroleum Show from Monday, 13 February to Wednesday 15 February in Cairo. Under the theme “Supporting Sustainable Global Energy Supply and Demand,” the event will host talks on sustainable development, how climate change impacts oil and gas production, and decarbonization for net zero targets.

The UAE will host the International Conference on Effective Nuclear and Radiation Regulatory Systems from Monday, 13 February to 26 February in Abu Dhabi. This conference will host discussions on improving the effectiveness of nuclear and radiation regulatory systems and building resilience and agility in response to emerging challenges.

Egypt will host the CSR Forum from 2-5 March at Somabay, Hurghada. The event aims to further discussions put forth during COP27 and boost private and public sector cooperation on climate action. You can register for the event here.

The Arabia CSR Awards is accepting applications until Friday, 30 June. The awardwinners will be announced during a ceremony on Wednesday, 4 October.

The first MENA Solar Conference is accepting applications from published researchers specialized in PV technology until Sunday, 30 April. The Dubai Electricity and Water Authority will be hosting the conference from 15 to 18 November, in conjunction with the Water, Energy, Technology, and Environment Exhibition and the Dubai Solar Show 2023. Researchers can submit their papers here.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

KSA’s PIF plans fresh USD 5.5 bn green bond issuance: The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, is reportedly planning to sell USD 5.5 bn of green bonds, Reuters reports, citing an investment bank working on the issuance. The planned sale would be PIF’s second green bond issuance in four months, the newswire notes, after it took its maiden issuance to market in October. No details on the expected timeline of the sale were disclosed.

The details: PIF plans to sell USD 1.75 bn of seven-year notes at 115 bps over US Treasuries, USD 2 bn in 12-year bonds at 145 bps over USD Treasures, and a third USD 1.75 bn tranche of 30-year bonds carrying an interest rate of 185 bps over US Treasuries. “Each tranche will be of benchmark size, which typically means at least USD 500 mn,” Reuters reports.

There’s already strong appetite: The offering is c.5.9x oversubscribed, with a combined USD 32.5 bn in orders, according to the investment bank. The seven-year notes drew in USD 15.2 bn in orders, while the 12-year notes drew more than USD 9.8 bn in orders, and the 30-year tranche saw USD 7.5 bn in orders, Reuters reports.

That appetite was broadly expected, following a strong 2022 for MENA’s green debt market: Following a “positive” 2022 for MENA’s ESG debt sales with strong investor interest in green instruments, 2023 is likely on track to see more issuances with healthy appetite, head of MENA Debt Capital Markets at HSBC Khaled Darwish previously told Enterprise Climate. The first six weeks of the year alone saw Saudi National Bank’s maiden USD 750 mn ESG sukuk, Saudi’s Riyadh Bank USD 750 mn issuance of its first Tier 1 capital instrument as a sustainable sukuk, and Abu Dhabi’s Sweihan PV Power Company sale of amortizing green bonds — which raised almost USD 701 mn — for its Noor Abu Dhabi solar plant project. The region’s green debt market saw a lull for a few months as market turmoil hit on the back of the Russia-Ukraine war, but the second half of the year came back strong with issuances including Morocco’s local rail operator Office National des Chemins de Fer du Maroc issuing the country’s first green infrastructure bond of MAD 1 bn (roughly USD 95 mn). Abu Dhabi Commercial Bank also raised USD 500 mn through its first-ever green bond sale in September, while Dubai Islamic Bank sold USD 750 mn of its debut sustainable sukuk in November.

Advisors: Goldman Sachs, JPMorgan, and Standard Chartered Bank are joint global coordinators on the sale, while BofA Securities, BNP Paribas, Citi, First Abu Dhabi Bank, HSBC, and Morgan Stanley are active bookrunners. Credit Agricole, GIB Capital, ICBC International Securities, Mizuho, SMBC Nikko, and Societe Generale have also been tapped as passive bookrunners, according to Reuters.

Neom’s mega green hydrogen project needs more capital: Saudi Arabia’s Neom green hydrogen project — a JV between Neom, US-based gas supplier Air Products and Saudi Arabia’s Acwa Power — will need additional capital injections to the tune of USD 3.5 bn, Air Products said in its 1Q 2023 earnings call, according to a transcript (pdf). The overall estimated price tag for the project has been adjusted upward to USD 8.5 bn from the original USD 5 bn due to rising inflation, advance payments for land rights, and USD 1 bn of interest payments on loans to fund the project, the company said.

The breakdown in added expenses: The US-based gas supplier attributes USD 500 mn to surging inflation, USD 1.2 bn to be disbursed to push down the project’s operating expenses and ensure the project’s self-sufficiency, and an additional USD 1.8 bn needed for project financing costs, upfront fees, interest during construction, and additional joint venture costs, among other expenses.

The JV is also revising its investment structure: Air Products is investing approximately USD 800 mn in cash instead of the original USD 1.7 bn it had earmarked for the project, according to the call transcript. The JV will now fund the project with 25% cash and 75% debt financing. The project is 2x oversubscribed with over 20 international financial institutions committed to bankrolling the green hydrogen project, Air Products said, without disclosing the names of the project’s financiers.

The revised price tag isn’t holding the project back, though: Saudi Arabia’s Industry and Mineral Resources Ministry issued an industrial operating license for the Neom Green Hydrogen Company, and all major subcontracts for the project have also been awarded and construction already underway with 30% of engineering works for the hydrogen plant completed, Air Products noted on the call.

UAE renewables developer Masdar is expanding operations in Azerbaijan by establishing a base of operations in Baku, according to a company statement. The new base is part of the company’s plan to expand operations in the country and increase its capacity and scope of work in the country, Chairman Sultan Al Jaber says in the statement.

Masdar has a pipeline exceeding 10 GW in the works: Masdar signed an agreement with Azerbaijan’s state oil firm SOCAR to develop renewables projects with a combined capacity of 4 GW in January. These include the joint development of offshore wind energy and hydrogen projects with a capacity of 2 GW, solar photovoltaic energy projects with a capacity of 1 GW, and 1 GW of onshore wind energy. This forms part of a broader agreement between the clean energy firm and Azerbaijan’s Energy Ministry to build a renewables program with a total capacity of 10 GW, “across multiple technologies,” the statement notes. Masdar reached financial close in August for the 230 MW Garadagh solar PV plant — its first project in the Central Asian country — due to begin commercial operation in 2023.

Azerbaijan has been angling for green FDI: The country signed a cooperation agreement for a 1.5 GW offshore wind project with Tadawul-listed Acwa Power earlier this week and broke ground on a 240 MW wind project with the KSA energy giant last month. The projects are part of a partnership to build wind farms with a combined capacity of 2.5 GW and develop the country’s first battery storage systems. Egypt’s President Abdel Fattah El Sisi met with his Azerbaijani counterpart Ilham Aliyev last week to discuss cooperation on renewable energy and Egypt’s renewables and hydrogen generation capacity on his first state visit to the country.

The UAE may be throwing in help to integrate renewable energy on the grid: Chairman of the Board of Azerbaijani Energy Regulatory Agency met with the transmission and distribution executive director of UAE’s state-owned Taqa this week to discuss the integration of renewable energy sources into the country’s energy network, according to AzerNews.

Egypt, Siemens could collaborate on renewables: Egypt’s Electricity and Renewable Energy Minister Mohamed Shaker met with Egypt Managing Director of Siemens Energy Layla El Hares to explore potential cooperation on green hydrogen and renewable energy generation capacities, according to a cabinet statement. Siemens Gamesa — a subsidiary of Siemens Energy — is a major player in Egypt’s wind energy sector, and is involved in the Ras Ghareb, West Bakr, and Gabal El Zeit projects in the Gulf of Suez.

Siemens has been making moves in MENA’s clean fuel market: Siemens energy partnered with Masdar, Marubeni, and TotalEnergies last month to obtain licenses certifying the feasibility of producing sustainable aviation fuel from methanol gas.

OTHER STORIES WORTH KNOWING ABOUT THIS MORNING-

• Saudi’s Jameel Motors will now distribute MG Motor cars in Morocco including electric and plug-in hybrid models. (Zawya)
• The Tunisian Association of Energy, Water and Environment and the International Union for Conservation of Nature will fund a TND 97k oasis restoration project in Kebili, Tunis. The project will be implemented within 18 months. (Tunis Afrique Presse)
• Aramco has made a sustainability-focused investment of USD 300 mn in VC fund Wa’ed Ventures to increase ESG funding and has announced a strategic partnership to build Zoom’s first global data center in Saudi Arabia to explore innovative tech solutions and the digital transformation of the energy sector. (Statement)

China gives eVTOL maker greenlight to take off: The Civil Aviation Administration of China has granted Chinese firm XPeng Inc’s electric take-off and landing (eVTOL) aircraft a special flight permit for flying tests, according to a statement. The permit allows the evTOL to fly under special conditions as part of a series of manned flying tests to gather data for future mass production. A prototype of the aircraft was unveiled during the Gitex tech show last October (watch runtime: 1:33).

SOUND SMART- eVTOLS are drone-like aircraft that use electric propulsion and large omnidirectional fans to allow them to takeoff vertically and to act like air taxis. They are meant to be energy efficient, quiet, environmentally friendly, and eventually pilotless. Beyond their applications as air taxis, the vehicles are expected to be able to operate on an inter-city basis and even be used for cargo shipping.

The air mobility industry is getting attention in the region: Saudi Arabia’s Neom recently invested USD 175 mn in German electric eVTOL vehicle maker Volocopter, as part of a partnership that will see the two roll out an “advanced air mobility industry” in KSA. KSA’s national flag carrier Saudia also recently signed an agreement with Lilium to purchase 100 electric jets, while UAE-based charter flight operator Falcon Aviation Services is buying up to 35 flying taxis from electric aircraft company Eve Holding, with deliveries expected to start in 2026.

Can salt water be used in green hydrogen production? Researchers from Australia’s University of Adelaide have unveiled a method to use untreated salt water as a feedstock in electrolyzers used to generate green hydrogen, according to research published in Nature Energy.

Bringing down costs and saving fresh water: Researchers split sea water into hydrogen and oxygen through electrolysis with almost a 100% efficiency rate similar to the widely used electrolysis method of using fresh water and treated industrial wastewater to break water molecules apart to produce the green fuel, the study says. The process — which bypasses costly water treatment procedures that hike the operational costs of hydrogen generation — will boost water conservation globally by minimizing the use of fresh water sources for green hydrogen production, researchers note.